IMF was created on some market failure basis. Keynes, the founder of IMF was afraid that market if left alone, may destroy people and make them unemployed. He pointed out the market failures and possible problems and gave IMF as a solution. He proposed an agenda that IMF can help the matters by pressurizing the countries. It will, therefore, maintain their economy with full employment and provide liquidity to the countries that are facing issues regarding economy failures. This strategy worked well and IMF was founded, until things started to take a turn. IMF became a lost cause, the market failures pointed out by the founder went down the drain because the people who handle IMF now, are all economists who trust market and do not believe in market failures.

They have no confidence in the public institutions, which make it even worse. Economist developed a failure theory of government action in order to explain the problem in the market and reasons for its failure. In larger terms, this theory explains how an individual government fails to play his part in the global collective action. Making a rational point of view of international policies of agencies as IMF, this also help to pinpoint the scenarios in which a market may fail to work and this also explain the change in policies and strategies that can minimize the damage, also how they can avoid market failures in the first place. IMF helps developing countries by encouraging them to have more contractionary politics. It also encourages the countries to adopt expansionary policies in order to give benefit to other countries.

Recently the agenda of IMF has changed as it is no more coherent as it was before. This has obviously given rise to problems, these problems are rather complex to handle. IMF now have men making powerful and difficult decisions on their own rather quickly rather than a proper academics making rather calm decisions that are coherent and have intellectual consistency. Other reasons may include the fact that IMF has to take care of goals of enhancing the global stability but also making sure that there are proper funds provided to the countries that are facing the threat of possible collapse to follow their expansionary policies. Another reason is that IMF is pursuing a financial community which automatically results in a clash of some of their objectives. All these problems cannot be discussed in open as this may result in losing the support completely. This is one of the reasons why the agenda of IMF is kept rather hidden or only said to be the same as in start.

From the original agenda of serving global economic interest to serving the global finance interest, everything is changing. Capital market liberalization might not help with global economic stability but it helps with a new market of Wall Street. As IMF never openly admitted that their agenda has shifted from protecting the global economy to the financial community, no help can be generated for possible problems that may occur. This is no surprise that their agenda has shifted from saving economy to helping finance community the main reason is because most of the people handling IMF today belong to finance community. IMF believed that capital market liberalization would help the developing countries in growing faster, they believed this would help poor countries and so they never investigated any further.

The major example of IMF policy disaster is Thai baht collapse, this affected many countries such as Indonesia, Malesia, Philippines, and Korea. The fact that it was the time for IMF to finally show their performance as they were founded for this reason. The policies of IMF made it even worse making regional markets, stock markets and banks crash, all at once. The fact that they were not able to handle the situation effectively made everyone question their role and agenda. Capital market liberalization which as one of the most important policies and motto of IMF was surprisingly the cause of the crisis.

Even today IMF admit their mistake and the loopholes in their policies. Even before the crisis, IMF predicted a strong growth, they even named it as “East Asia miracle” but as soon as the crisis broke, they criticized the countries and their policies. IMF and World Bank avoided studying the economic growth of the region in the first place, ignoring everything because they were successful. The fact that they saved heavily and invested well made “East Asia miracle” possible. Everything done by the East Asian government was different from Washington consensus policy except the fact that both emphasized on macro stability.

According to Washington consensus, industrial policies in which government takes the responsibility of shaping up the future of the economy is a mistake, whereas East Asian government took this as their first and foremost aim. The government realized that in order to bridge the income gap between developing such as themselves and developed countries they need to bridge the gap between education and technology. The fact that President Clinton ignored the baht as just a “few glitches in the road” represent his confidence while the finance ministers of these countries were terrified of the money that was coming.

They knew something terrible was going to happen. This crisis later spread to Korea, Indonesia and later to the whole world in the form of a currency crisis. The fact that there were some incredible similarities between both the crises was shocking. South Korea was flourishing developing just like East Asia, South Korea gave a great attention to their financial markets, they under the pressure allowed their firms to borrow abroad, as a result when their firm got exposed to international market things started to change. Rumors spread in Wall Street that Korea would not be able to pay back the loan of the western banks that were due, banks refused to roll over their loan and Korean economy was in real trouble.

Another crisis occurred in Thailand which is very interesting. People started to exchange their currency into dollars, traders’ started to sell their currency, as a result, the value of local currency weakened. The government took a step and sold the dollars in order to buy local currency so that they can help their currency to retain the value, this gave rise to more selling and a result government ran out of hard currency. People who got one dollar for exchanging 24 baht sold after one week for 40 baht. IMF played an important role as they thought to provide the money to the countries would add the value to their currency and the buyer and seller will gain confidence. But people took that money to pay off their loan to western banks making it more of a problem rather than a solution (Stiglitz).